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NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Risk, Return and Performance of Funds

A fund has a beta of 1.4 relative to its benchmark index. If the benchmark rises by 10%, what change would be expected in the fund, other things being equal?

The fund would be expected to rise by about 14%. Beta of 1.4 means the fund moves 1.4 times the benchmark, so a 10% rise in the index implies 1.4 x 10% = 14%.

  1. ARise of about 7.1%
  2. BRise of about 11.4%
  3. CRise of about 14%Correct
  4. DRise of about 10%

Explanation

Expected change = beta x market change = 1.4 x 10% = 14%. Dividing 10 by 1.4 gives 7.1%, which inverts the relationship. A beta of 1 would give 10%, but this fund's beta is higher.

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